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Scope

occurs. However, variable payments that are based on achieving a specified target would be recognized
at the time the achievement of the target is considered probable in accordance with ASC 842-20-55-1.

These payments, when recognized, will be allocated to the lease components based on their relative
standalone prices at lease commencement. This concept is illustrated in ASC 842-10-55-140. Variable
payments that depend on an index or a rate are included in the allocable consideration and allocated
based on the relative standalone prices of the lease and nonlease components.

2.5 Components within a lease

Lease accounting should be applied at the lowest component. Therefore, after determining the lease
and nonlease components, a reporting entity should consider whether the lease contains more than
one lease component. This is done by identifying the units of account.

A reporting entity should identify whether the customer is contracting for a number of separate
deliverables or contracting for one deliverable that may incorporate a number of different assets. This
analysis is similar to the one used to determine a performance obligation in ASC 606. Components of a
contract that could be utilized exclusive of the remainder of the contract components should be
accounted for separately, as discussed in ASC 842-10-15-28. Both of the criteria discussed in this
guidance must be met in order to separate lease components. Note that while these criteria are
considered when evaluating multiple lease components, they are not considered when determining
whether a lease exists.

ASC 842-10-15-28
After determining that a contract contains a lease in accordance with paragraphs 842-10-15-2 through
15-27, an entity shall identify the separate lease components within the contract. An entity shall
consider the right to use an underlying asset to be a separate lease component (that is, separate from
any other lease components of the contract) if both of the following criteria are met:
a. The lessee can benefit from the right of use either on its own or together with other resources that
are readily available to the lessee. Readily available resources are goods or services that are sold or
leased separately (by the lessor or other suppliers) or resources that the lessee already has
obtained (from the lessor or from other transactions or events).
b. The right of use is neither highly dependent on nor highly interrelated with the other right(s) to
use underlying assets in the contract. A lessee’s right to use an underlying asset is highly
dependent on or highly interrelated with another right to use an underlying asset if each right of
use significantly affects the other.

The separate lease components should be determined by considering the nature and interdependency
of the individual assets covered by the arrangement. A key consideration is whether the supplier will
use multiple assets, or a group of assets that work together, to fulfill the arrangement. If the assets are
functionally independent of one another, the arrangement includes multiple units of account; each
should be evaluated individually to determine whether it’s a lease. Conversely, if the assets covered by
the arrangement are designed to function together, those assets represent a single component. For
example, if a customer leases computers and monitors from a technology supplier and the monitors
are not tailored to the computer (each can operate without the other by connecting to a competitor
supplier’s products) the arrangement should be accounted for as two lease components. While a
computer and a monitor do not function without each other, they do not need to function with one

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